The Next Big Industry: Farming Technology

Major companies like DuPont and Monsanto have made plans to invest in the developing agriculture-based IT business.

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On Wall Street, the agriculture business has long been a popular place for commodity trading. After all, it was with agricultural futures that commodity trading got its start, when farmers originally used futures contracts to offset losses in crop yields. Over the years, the agriculture space has rapidly developed, offering investors various options to cash in on the industry.

Recently, investors have witnessed a new trend developing in the agriculture industry. Several noteworthy companies, like Monsanto (NYSE:MON) and DuPont (NYSE:DD), have announced plans to delve into the agriculture-based information technology business, a move that could have a significant impact on farmers, traders, and companies alike.

Big Data and Big Tech

In its most recent earnings report, Monsanto announced its effort to delve further into "precision farming" technology, which includes a wide range of tech tools, such as individualized weather statistics that are designed to improve farmers' crop yields.

The term "prescriptive planting" has also emerged in recent months, as Monsanto and DuPont push to launch what they say is the "next revolution" in farming. The technology service involves gathering key data from farmers, such as historic crop yields, soil conditions, and seed performance. Once the data is analyzed by the company, it sends a computer file with recommendation back to the farmer, who can then upload it into a planter; the equipment then plants based on the recommendations. The technology also advises farmers on how to manage and increase crop yields based on weather and other factors monitored by the company.

According to Monsanto, these technologies have the potential to substantially boost crop yields. For example, the company estimates that the average corn harvest could increase from the current 160 bushels to more than 200 bushels; this translates to an extra $182 an acre in revenue for farmers, based on current prices.

Potential Headwinds

Though for major seed and farming technology companies the push towards prescriptive planting could prove quite profitable in the coming years, farmers have grown understandably leery of the new technology. Many believe the data collected by these companies could potentially be sold to traders or other farmers, giving them an unfair advantage.

Several farming trade groups have also expressed their concern that the new technology may steer farmers to purchase seed and other equipment from particular companies. The increased demand could then give these companies leverage to significantly increase prices.

Though many seed and equipment companies have vowed to always have farmers' interests in mind, it will likely be some time before the impacts and potential pitfalls of the new technologies are seen.

Editor's note: This article by Daniela Pylypczak was originally published on Commodity HQ.